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Bank and mortgage rules control which house you buy

Rules for buying property are stacked in favor of ranch homes, strip malls, and office parks. “Everything is intentionally excluded.”

Johnny at Granola Shotgun wanted to buy a mixed use property in Cincinnati for $50,000. He gave up because banks would not finance it because they require 25% down and at least a $50,000 loan. He could have paid cash but passed because the rules would make selling it more complicated.

Keep in mind, I know a young couple who bought a single family home within walking distance of this building at the same time and price point with almost no down payment with a low fixed interest thirty year federally backed mortgage.

The same exact bank will loan a marginally qualified borrower $50,000 to buy a fancy car that will lose most of its value in the five years it takes to pay off the debt. But it won’t lend a similar amount for a building that’s held up for a century. I could have paid cash for the building, but once I realized that all future sales would be stymied by the banks I switched tactics and bought a single family home instead.

He built a little 480 sq ft cottage in Hawaii for himself in the 1990’s and is finding it is almost impossible to sell.

The first red flag was the size of the house. It’s only 480 square feet. The second red flag was that it’s a studio with no separate bedrooms. The third red flag was a lack of comparable sales in the area in the last three months. There were three comparable cash sales within the last year demonstrating what the market would support, but Fannie Mae wasn’t interested.

Again… there were willing buyers and sellers in the “free market” yet the banks and regulators rejected the sale.